Tuesday, July 10, 2007
"You want the truth.....you can 't handle the truth!"
- Col. Nathan Jessep, A Few Good Men
Imagine Macro Man's surprise when he read a comment on Brad Setser's blog suggesting that access to his humble journal has now been blocked in China. He has no idea if this is true or not, and isn't sure what his reaction would be if it is. Surprise, for sure, tinged with perhaps a touch of pride (clearly he is hitting a nerve!) and more than a little sadness (does Col. Jessep really live in Beijing now?) Somehow, however, Macro Man suspects that his little hobby probably doesn't register on the radar of anyone who really matters. Still, if any of Macro Man's Chinese readers (there have been a few) happen to see this post, by all means let him know that he's not blocked!
Perhaps any web access shenanigans were conducted with a foreknowledge of China's June trade data, which was a whopper. The surplus registered at a massive $26.9 billion, a new record and well above the consensus expectation. Some of the surplus may well have been a product of frontloaded activity resulting from the July 1 withdrawal of some export tax rebates (i.e., subsidies), though in that case it was strange to see exports fall from 28.7% y/y to 27.1%. The real driver behind China's surging surpluses, however, remains tepid imports, which in June rose just 14.2% y/y, well below the expected 20%. Could it be that PBOC has actually managed to tighten and that the economy is slowing?
Trends in China's trade with the US are particularly interesting, as we now have data through May (the month of Madame Wu's visit to Washington, you may recall.) There is a clear seasonality to US/China trade, with a peak in the run-up the Christmas season and a nadir around the lunar New Year. Through the first two months of Q2, China's trade surplus seems to have clawed back less of its Q1 drop than has been the case in recent years. Some of this may well represent the inventory adjustment that the US economy has sustained in the first half of this year. Nevertheless, it is remarkable to see that the growth in China's exports to the US has fallen sharply and is now at its lowest level since the last recession.
Eagle-eyed politicians might also observe that the recent peak in China's export growth to the US occurred just before the Chinese revaluation in July 2005 and that the recent deceleration has come as the pace of RMB strengthening has intensified. Indeed, recent trends in import/export growth are likely to reinforce the notion that the China's undervalued exchange rate is exerting a meaningful influence on trade, and thus maintain US political pressure on China for further action.